Articles & Alerts
Raising Capital – Is Building Value Enough in 2023?
The “2023: Capital Markets and Building Value” panel at Natural Products Expo West 2023 featured Megan Klingbeil, Partner at Anchin; Edricco Reina of SPINS; Kristy Lewis of Quinn Snacks; Josh Wand of ForceBrands; Ryan Lewendon of Giannuzzi Lewendon; Nick McCoy of Whipstitch Capital; and Michael Burgmaier of Whipstitch Capital, who moderated the discussion.
This year, possibly more than ever, raising capital in the CPG industry is a challenge. Along with several other experienced advisors to food and beverage companies and an experienced founder, I shared ideas and lessons learned during a panel session. Our conversation covered a myriad of considerations that come with fundraising, from ensuring you are choosing the right partners to knowing your margins to potentially preparing an exit strategy.
We know that running a business is challenging financially, mentally, and emotionally. What made this panel unique was that it provided tangible action items that address the many partnerships and financial considerations that founders currently must navigate.
To help spread the insight gleaned from this discussion, I have compiled five key takeaways that will hopefully provide helpful considerations as you plan for your brand’s future.
1. The days of prioritizing top-line growth above all else are gone. Bottom-line growth is the focus. Investors and Strategics are looking at the big picture and companies have to tell a financial story that is sustainable. Having a good contribution margin is critical, so brands should work closely with their manufacturers and logistics providers, and evaluate their costs to determine whether there are cuts needed. Brands should also put together a realistic budget so all teams are working towards the same goal, and monitor progress against it. Additionally, companies must be mindful about how they allocate their capital. Funds devoted to marketing, salaries, and manufacturing may need to be re-evaluated throughout the brand’s growth. Brands should be prepared, and not afraid, to make difficult decisions to support their financial goals.
Kristy Lewis | QUINN | On Preparedness
2. Ensure that you are choosing business partners who understand your vision and are equipped to support you in the long term. While it is natural to focus on appealing to investors, remember that you are choosing a partner just as much as they are. Make sure that you know what investors look for in founders and brands and that they share the same long-term vision that you do. If you have investors whose skill set, experience and priorities align with yours, they may be more helpful and more likely to help you with troubleshooting down the road.
3. As the industry data becomes more accessible and sophisticated, investors become increasingly able to track brands’ long-term progress. As the industry has grown, so too has the access to data. This is especially true for investors and their tracking capabilities. For instance, a company might have approached an investor and provided projections. If the investor wants to consider this company down the line, they can compare the company’s actual numbers to those that they had projected to glean insight on whether the company hit its mark. As a result, in the long run, a company’s first impression is very important.
Nick McCoy | Whipstitch Capital | On Data Governance
4. Because you don’t definitively know your margin until you’ve properly classified everything, having an accountant with experience in the consumer products industry is crucial. With a focus on bottom-line growth and not top-line growth at all costs, investors want to understand your true margins. You want to make sure that when you provide financials to a potential investor, they are correct the first time they are provided, as incorrect financial data can cause a deal to fall through. It is important to not only know what items go into your gross profit margin, but also understand your contribution margin. Knowing which element affects which part of your financial reporting requires enlisting the help of an accountant who not only has technical expertise, but also understands how the changing market can impact business practices.
Megan Klingbeil, CPA | On Reporting Gross Profit Margin
5. If you are planning an exit, ensure that your management team can successfully work as part of a bigger system or conglomerate after the company sells. For many founders, the exit is not the end point, but could create a dramatic shift in team dynamics. Because of this, it is important for founders – particularly those who are more self-directed – to assess and have a conversation with their boards about whether they are the right person to plan an exit and integrate, or if it’s better for them to bring someone on who will integrate and focus on other specific initiatives after selling. Transparency around your vision for the future can prevent headaches down the road.
Ryan Lewendon | Josh Wand | Longer-term Considerations for Founders that Often Go Overlooked
I am grateful to have been part of a thought-provoking discussion with incredible industry colleagues. Sharing collective wisdom is an integral element of our profession, and I am here to offer my help to founders at any stage in their business. Please contact me for more information or to discuss planning for your specific circumstances. Find out more about Anchin’s Food and Beverage group here.
Tips on Navigating Difficult Times
Mike Burgmaier | Whipstitch Capital | On Navigating a Downturn
Kristy Lewis | QUINN | On Self-Manufacturing